Order Paper: What It Is and How It Works

Key takeaways
* An order paper (order instrument) is a negotiable instrument payable to a specifically named person or that person’s assignee.
* It contrasts with a bearer instrument, which names no payee and can be cashed or transferred by anyone in possession.
* Common examples of order paper include personal checks, registered bonds, bills of exchange, and promissory notes.
* Endorsing an order paper incorrectly can convert it into a bearer instrument and increase the risk of loss or theft; special and restrictive endorsements limit that risk.

What an order paper is

An order paper is a negotiable instrument that designates a specific payee by name — typically using wording such as “pay to the order of [name].” Only the named payee (or someone the payee properly assigns it to) is entitled to collect payment. Because the instrument is negotiable, the payee can transfer it under the rules that govern negotiable instruments.

Order paper vs. bearer instrument

• Order paper: Names a specific payee; payment is due to that named person or their assignee.
• Bearer instrument: Contains no named payee; possession equals entitlement. Examples include most cash bills.

Common examples
* Order paper: Personal checks, registered bonds, bills of exchange, promissory notes.
* Bearer instrument: A $20 bill or other cash without a payee designation.

Legal characteristics of an order paper

To qualify as an order (negotiable) instrument, it generally must:
* Be signed by the drawer (or maker).
* Contain an unconditional promise or order to pay a fixed sum of money.
* Be payable to the order of a named payee (or include “to [named person] or order”).
* Be payable on demand or at a definite time.

The phrase “or order” permits the named payee to designate another party to receive payment.

Endorsements and transfer risks

• Blank endorsement: If the payee merely signs the back (a blank endorsement), the order paper becomes a bearer instrument. Anyone possessing it can cash or deposit it.
• Special endorsement (assignment): The payee writes “pay to the order of [new payee]” and signs — this transfers the instrument to a specific person rather than to whoever holds it.
• Restrictive endorsement: Adds instructions such as “For deposit only to account #…” to limit how the instrument can be used, reducing the risk of unauthorized negotiation.

Best practices
* Avoid endorsing checks until you are ready to deposit or cash them.
* Use special or restrictive endorsements when transferring or depositing to maintain control and reduce theft risk.
* Keep blank-endorsed instruments secure, as possession conveys payment rights.

Summary

An order paper is a negotiable instrument payable to a specifically named person or that person’s assignee. It provides stronger control over who can receive payment than a bearer instrument, but careless endorsement can convert it into a bearer instrument and increase risk. Use special or restrictive endorsements to preserve control when transferring or depositing order papers.